How do you find 10-20 cap rates in real estate?

Good question!

High cap rates are directly correlated with many higher risks of not getting paid and serious problems. The higher the cap rate, the more problems you are likely to experience. High quality investments have low cap rates and low quality investments have much higher cap rates.

Let’s say a broker brought you a package of houses that had a 15 cap rate but he mentioned there is one problem, the neighborhood is “not so good” but will be turning around soon.

Let’s say it is a crime infested neighborhood with crack houses where collecting the rent might mean you or your property manager being shot while attempting to collect it.

If you go to some run down trailer park communities you can find these higher cap rates also. The worse the area and the higher the probability of being shot the higher the cap rate. Stay away from these unless you know a lot about investing and know how to handle things.

This is not something good for a new investor. All that glitters is not gold. There are much easier ways to make money without buying ultra high cap rate investments and trying to manage them.

You need to find a real estate mentor. Mentees come to me not knowing anything with a shiny object syndrome where they think that X or Y investment strategy their friend is doing or someone on YouTube is perfect.

These mentees often don’t know the basics of what is the difference between bond, equity, notes, etc. They can’t describe the relationship between interest rates and bond prices or how to evaluate risk through proper due diligence. All these skills can be learned.

When I mentor young and older entrepreneurs I spend time listening to them to understand how they think about business and where the gaps in their knowledge are. Each of them has weak points and these weak points are what I focus on. I don’t teach them what they want to know, I teach them what they need to know.

Many of them are not even aware of the massive gaps in their knowledge and how it will create problems for them later as an entrepreneur. I think it is irresponsible mentorship to just teach the one thing that a mentee wants to learn and not correct their weak points and mistakes.

Once you have this personal financial education you will know what options are available and be able to make intelligent and informed decisions.

Yes, it is not easy. It takes a commitment of time and money to learn how to invest. You can either pay money to a mentor that can help you or you can pay money by trying deals without having someone help you and losing money - either way you will pay money for your education.

You either will pay by learning from experience losing money on real investments or by learning from an experienced mentor. The most important thing is to keep a positive attitude and never quit.

I hope that helps and good luck with your investing!

Benjamin Z Miller
www.benjaminzmiller.com